Medicare Program; Inpatient Rehabilitation Facility Prospective Payment System for Federal Fiscal Year 2008, 44284-44335 [07-3789]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 72, Number 151 (Tuesday, August 7, 2007)]
[Rules and Regulations]
[Pages 44284-44335]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-3789]



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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 412



Medicare Program; Inpatient Rehabilitation Facility Prospective Payment 
System for Federal Fiscal Year 2008; Final Rule

Federal Register / Vol. 72, No. 151 / Tuesday, August 7, 2007 / Rules 
and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1551-F]
RIN 0938-AO63


Medicare Program; Inpatient Rehabilitation Facility Prospective 
Payment System for Federal Fiscal Year 2008

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule will update the prospective payment rates for 
inpatient rehabilitation facilities (IRFs) for Federal fiscal year (FY) 
2008 (for discharges occurring on or after October 1, 2007 and on or 
before September 30, 2008) as required under section 1886(j)(3)(C) of 
the Social Security Act (the Act). Section 1886(j)(5) of the Act 
requires the Secretary to publish in the Federal Register on or before 
the August 1 that precedes the start of each fiscal year, the 
classification and weighting factors for the IRF prospective payment 
system's (PPS) case-mix groups and a description of the methodology and 
data used in computing the prospective payment rates for that fiscal 
year.
    We are revising existing policies regarding the PPS within the 
authority granted under section 1886(j) of the Act.

DATES: The regulatory changes to 42 CFR part 412 are effective October 
1, 2007. The updated IRF prospective payment rates are applicable for 
discharges on or after October 1, 2007 and on or before September 30, 
2008.

FOR FURTHER INFORMATION CONTACT: Pete Diaz, (410) 786-1235, for 
information regarding the 75 percent rule.
    Susanne Seagrave, (410) 786-0044, for information regarding the 
payment policies.
    Zinnia Ng, (410) 786-4587, for information regarding the wage index 
and prospective payment rate calculation.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
    A. Historical Overview of the Inpatient Rehabilitation Facility 
Prospective Payment System (IRF PPS) for Fiscal Years (FYs) 2002 
Through 2007
    B. Requirements for Updating the IRF PPS Rates
    C. Operational Overview of the Current IRF PPS
II. Provisions of the Proposed Regulations
III. Analysis of and Responses to Public Comments
IV. 75 Percent Rule Policy
V. Classification System for the Inpatient Rehabilitation Facility 
Prospective Payment System
VI. FY 2008 IRF PPS Federal Prospective Payment Rates
    A. FY 2008 IRF Market Basket Increase Factor and Labor-Related 
Share
    B. Area Wage Adjustment
    C. Description of the IRF Standard Payment Conversion Factor and 
Payment Rates for FY 2008
    D. Example of the Methodology for Adjusting the Federal 
Prospective Payment Rates
VII. Update to Payments for High-Cost Outliers Under the IRF PPS
    A. Update to the Outlier Threshold Amount for FY 2008
    B. Update to the IRF Cost-to-Charge Ratio Ceilings
VIII. Clarification to the Regulations Text for Special Payment 
Provisions for Patients That Are Transferred
IX. Miscellaneous Comments Outside the Scope of the Proposed Rule
X. Provisions of the Final Regulation
XI. Collection of Information Requirement
XII. Regulatory Impact Analysis
    A. Overall Impact
    B. Anticipated Effects of the Final Rule
    C. Anticipated Effects of the 75 Percent Rule Policy
    D. Alternatives Considered
    E. Accounting Statement
    F. Conclusion
Regulation Text
Addendum

Acronyms

    Because of the many terms to which we refer by acronym in this 
final rule, we are listing the acronyms used and their corresponding 
terms in alphabetical order below.

ASCA Administrative Simplification Compliance Act of 2002, Pub. L. 
107-105
BBA Balanced Budget Act of 1997, Pub. L. 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999, Pub. L. 
106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Benefits Improvement and Protection Act of 2000, 
Pub. L. 106-554
CBSA Core-Based Statistical Area
CCR Cost-to-Charge Ratio
CFR Code of Federal Regulations
CMG Case-Mix Group
DRA Deficit Reduction Act of 2005, Pub. L. 109-171
DSH Disproportionate Share Hospital
ECI Employment Cost Indexes
FI Fiscal Intermediary
FR Federal Register
FY Federal Fiscal Year
HHH Hubert H. Humphrey Building
HIPAA Health Insurance Portability and Accountability Act, Pub. L. 
104-191
IFMC Iowa Foundation for Medical Care
IOM Internet-Only Manual
IPPS Inpatient Prospective Payment System
IRF Inpatient Rehabilitation Facility
IRF-PAI Inpatient Rehabilitation Facility-Patient Assessment 
Instrument
IRF PPS Inpatient Rehabilitation Facility Prospective Payment System
IRVEN Inpatient Rehabilitation Validation and Entry
LIP Low-Income Percentage
MEDPAR Medicare Provider Analysis and Review
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173)
MSA Metropolitan Statistical Area
NAICS North American Industrial Classification System
OMB Office of Management and Budget
PAI Patient Assessment Instrument
PPS Prospective Payment System
RAND RAND Corporation
RAC Recovery Audit Contractor
RFA Regulatory Flexibility Act, Pub. L. 96-354
RIA Regulation Impact Analysis
RIC Rehabilitation Impairment Category
RPL Rehabilitation, Psychiatric, and Long-Term Care Hospital Market 
Basket
SCHIP State Children's Health Insurance Program
SIC Standard Industrial Code
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-
248

I. Background

A. Historical Overview of the Inpatient Rehabilitation Facility 
Prospective Payment System (IRF PPS) for Fiscal Years (FYs) 2002 
Through 2007

    Section 4421 of the Balanced Budget Act of 1997 (BBA, Pub. L. 105-
33), as amended by section 125 of the Medicare, Medicaid, and SCHIP 
[State Children's Health Insurance Program] Balanced Budget Refinement 
Act of 1999 (BBRA, Pub. L. 106-113), and by section 305 of the 
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
of 2000 (BIPA, Pub. L. 106-554), provides for the implementation of a 
per discharge prospective payment system (PPS), through section 1886(j) 
of the Social Security Act (the Act), for inpatient rehabilitation 
hospitals and inpatient rehabilitation units of a hospital (hereinafter 
referred to as IRFs).
    Payments under the IRF PPS encompass inpatient operating and 
capital costs of furnishing covered rehabilitation services (that is, 
routine, ancillary, and capital costs) but not costs of approved 
educational activities, bad debts, and other services or items outside 
the scope of the IRF PPS. Although a complete discussion of the IRF PPS 
provisions appears in the August 7, 2001 final rule (66 FR 41316) as 
revised in the FY 2006 IRF PPS final rule (70 FR 47880, August 15, 
2005), we are providing below a general

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description of the IRF PPS for fiscal years (FYs) 2002 through 2005.
    Under the IRF PPS from FY 2002 through FY 2005, as described in the 
August 7, 2001 final rule, the Federal prospective payment rates were 
computed across 100 distinct case-mix groups (CMGs). We constructed 95 
CMGs using rehabilitation impairment categories (RICs), functional 
status (both motor and cognitive), and age (in some cases, cognitive 
status and age may not be a factor in defining a CMG). In addition, we 
constructed five special CMGs to account for very short stays and for 
patients who expire in the IRF.
    For each of the CMGs, we developed relative weighting factors to 
account for a patient's clinical characteristics and expected resource 
needs. Thus, the weighting factors accounted for the relative 
difference in resource use across all CMGs. Within each CMG, we created 
tiers based on the estimated effects that certain comorbidities would 
have on resource use.
    We established the Federal PPS rates using a standardized payment 
conversion factor (formerly referred to as the budget neutral 
conversion factor). For a detailed discussion of the budget neutral 
conversion factor, please refer to our August 1, 2003 final rule (68 FR 
45674, 45684 through 45685). In the FY 2006 IRF PPS final rule, we 
discussed in detail the methodology for determining the standard 
payment conversion factor.
    We applied the relative weighting factors to the standard payment 
conversion factor to compute the unadjusted Federal prospective payment 
rates. Under the IRF PPS from FYs 2002 through 2005, we then applied 
adjustments for geographic variations in wages (wage index), the 
percentage of low-income patients, and location in a rural area (if 
applicable) to the IRF's unadjusted Federal prospective payment rates. 
In addition, we made adjustments to account for short-stay transfer 
cases, interrupted stays, and high cost outliers.
    For cost reporting periods that began on or after January 1, 2002 
and before October 1, 2002, we determined the final prospective payment 
amounts using the transition methodology prescribed in section 
1886(j)(1) of the Act. Under this provision, IRFs transitioning into 
the PPS were paid a blend of the Federal IRF PPS rate and the payment 
that the IRF would have received had the IRF PPS not been implemented. 
This provision also allowed IRFs to elect to bypass this blended 
payment and immediately be paid 100 percent of the Federal IRF PPS 
rate. The transition methodology expired as of cost reporting periods 
beginning on or after October 1, 2002 (FY 2003), and payments for all 
IRFs now consist of 100 percent of the Federal IRF PPS rate.
    We established a CMS Web site as a primary information resource for 
the IRF PPS. The Web site URL is https://www.cms.hhs.gov/
InpatientRehabFacPPS/ and may be accessed to download or view 
publications, software, data specifications, educational materials, and 
other information pertinent to the IRF PPS.
    Section 1886(j) of the Act confers broad statutory authority to 
propose refinements to the IRF PPS. We finalized the refinements 
described in this section in the FY 2006 IRF PPS final rule. The 
provisions of the FY 2006 IRF PPS final rule became effective for 
discharges beginning on or after October 1, 2005. We published 
correcting amendments to the FY 2006 IRF PPS final rule in the Federal 
Register on September 30, 2005 (70 FR 57166). Any reference to the FY 
2006 IRF PPS final rule in this final rule also includes the provisions 
effective in the correcting amendments.
    In the FY 2006 final rule (70 FR 47880 and 70 FR 57166), we 
finalized a number of refinements to the IRF PPS case-mix 
classification system (the CMGs and the corresponding relative weights) 
and the case-level and facility-level adjustments. These refinements 
were based on analyses by the RAND Corporation (RAND), a non-partisan 
economic and social policy research group, using calendar year 2002 and 
FY 2003 data. These were the first significant refinements to the IRF 
PPS since its implementation. In conducting the analysis, RAND used 
claims and clinical data for services furnished after the IRF PPS 
implementation. These newer data sets were more complete, and reflected 
improved coding of comorbidities and patient severity by IRFs. The 
researchers were able to use new data sources for imputing missing 
values and more advanced statistical approaches to complete their 
analyses. The RAND reports supporting the refinements made to the IRF 
PPS are available on the CMS Web site at:  https://www.cms.hhs.gov/
InpatientRehabFacPPS/09_Research.asp.
    The final key policy changes, effective for discharges occurring on 
or after October 1, 2005, are discussed in detail in the FY 2006 IRF 
PPS final rule (70 FR 47880 and 70 FR 57166). The following is a brief 
summary of the key policy changes:
     Adopted the Office of Management and Budget's (OMB's) 
Core-Based Statistical Area (CBSA) market area definitions in a budget 
neutral manner.
     Implemented a budget-neutral 3-year hold harmless policy 
for IRFs that had been classified as rural in FY 2005, but became urban 
in FY 2006.
     Implemented a payment adjustment to account for changes in 
coding that did not reflect real changes in case mix. We reduced the 
standard payment amount by 1.9 percent to account for such changes in 
coding following implementation of the IRF PPS.
     Modified the CMGs, tier comorbidities, and relative 
weights in a budget-neutral manner. The five special CMGs remained the 
same as they had been before FY 2006 and continued to account for very 
short stays and for patients who expire in the IRF.
     Implemented a teaching status adjustment in a budget 
neutral manner for IRFs, similar to the one adopted for inpatient 
psychiatric facilities.
     Revised and rebased the market basket and labor-related 
share to reflect the operating and capital cost structures for 
rehabilitation, psychiatric, and long-term care (RPL) hospitals to 
update IRF payment rates.
     Updated the rural adjustment from 19.14 percent to 21.3 
percent in a budget neutral manner.
     Updated the low-income percentage (LIP) adjustment from an 
exponent of 0.484 to an exponent of 0.6229 in a budget neutral manner.
     Updated the outlier threshold amount from $11,211 to 
$5,129.
    As noted above, a detailed discussion of the final key policy 
changes for FY 2006 appears in the FY 2006 IRF PPS final rule (70 FR 
47880 and 70 FR 57166).
    In the FY 2007 final rule (71 FR 48354) we made the following 
revisions and updates:
     Updated the relative weight and average length of stay 
tables based on re-analysis of the data by CMS and our contractor, the 
RAND Corporation.
     Reduced the standard payment amount by 2.6 percent to 
account more fully for coding changes that do not reflect real changes 
in case mix.
     Updated the IRF PPS payment rates by the FY 2007 estimates 
of the market basket and the labor-related share.
     Updated the IRF PPS payment rates by the FY 2007 wage 
indexes.
     Applied the second year of the hold harmless policy in a 
budget neutral manner.
     Updated the outlier threshold from $5,129 to $5,534.
     Updated the urban and rural national cost-to-charge ratio 
ceilings for

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the purposes of determining outlier payments under the IRF PPS and 
clarified the methodology described in the regulations text.
     Revised the regulation text in Sec.  412.23(b)(2)(i) and 
Sec.  412.23(b)(2)(ii) to reflect the statutory changes in section 5005 
of the Deficit Reduction Act of 2005 (DRA, Pub. L. 109-171). The 
regulation text change prolongs the overall duration of the phased 
transition to the full 75 percent threshold established in Sec.  
412.23(b)(2)(i) and Sec.  412.23(b)(2)(ii), by extending the 
transition's 60 percent phase for an additional 12 months. In addition 
to the above DRA requirements pertaining to the applicable compliance 
percentage requirements under Sec.  412.23(b)(2), we also permitted a 
comorbidity that meets the criteria as specified in Sec.  
412.23(b)(2)(i) to continue to be used before the 75 percent compliance 
threshold must be met.

B. Requirements for Updating the IRF PPS Rates

    On August 7, 2001, we published a final rule titled ``Medicare 
Program; Prospective Payment System for Inpatient Rehabilitation 
Facilities'' in the Federal Register (66 FR 41316) that established a 
PPS for IRFs as authorized under section 1886(j) of the Act and 
codified at subpart P of part 412 of the Medicare regulations. In the 
August 7, 2001 final rule, we set forth the per discharge Federal 
prospective payment rates for FY 2002, which provided payment for 
inpatient operating and capital costs of furnishing covered 
rehabilitation services (that is, routine, ancillary, and capital 
costs) but not costs of approved educational activities, bad debts, and 
other services or items that are outside the scope of the IRF PPS. The 
provisions of the August 7, 2001 final rule were effective for cost 
reporting periods beginning on or after January 1, 2002. On July 1, 
2002, we published a correcting amendment to the August 7, 2001 final 
rule in the Federal Register (67 FR 44073). Any references to the 
August 7, 2001 final rule in this final rule include the provisions 
effective in the correcting amendment.
    Section 1886(j)(5) of the Act and Sec.  412.628 of the regulations 
require the Secretary to publish in the Federal Register, on or before 
the August 1 that precedes the start of each new FY, the 
classifications and weighting factors for the IRF CMGs and a 
description of the methodology and data used in computing the 
prospective payment rates for the upcoming FY. On August 1, 2002, we 
published a notice in the Federal Register (67 FR at 49928) to update 
the IRF Federal prospective payment rates from FY 2002 to FY 2003 using 
the methodology as described in Sec.  412.624. As stated in the August 
1, 2002 notice, we used the same classifications and weighting factors 
for the IRF CMGs that were set forth in the August 7, 2001 final rule 
to update the IRF Federal prospective payment rates from FY 2002 to FY 
2003. We continued to update the prospective payment rates in 
accordance with the methodology set forth in the August 7, 2001 final 
rule for each succeeding FY up to and including FY 2005. For FY 2006, 
however, we published a final rule that revised several IRF PPS 
policies (70 FR 47880). The provisions of the FY 2006 IRF PPS final 
rule became effective for discharges occurring on or after October 1, 
2005. We published correcting amendments to the FY 2006 IRF PPS final 
rule in the Federal Register (70 FR 57166). Any reference to the FY 
2006 IRF PPS final rule in this final rule includes the provisions 
effective in the correcting amendments.
    In the final rule for FY 2007, we updated the IRF Federal 
prospective payment rates. In addition, we updated the cost-to-charge 
ratio ceilings and the outlier threshold. We implemented a 2.6 percent 
reduction to the FY 2007 standard payment amount to account more fully 
for changes in coding practices that do not reflect real changes in 
case mix. We revised the tier comorbidities and the relative weights to 
ensure that IRF PPS payments reflect, as closely as possible, the costs 
of caring for patients in IRFs. The final FY 2007 Federal prospective 
payment rates were effective for discharges occurring on or after 
October 1, 2006 and on or before September 30, 2007.

C. Operational Overview of the Current IRF PPS

    As described in the August 7, 2001 final rule, upon the admission 
and discharge of a Medicare Part A fee-for-service patient, the IRF is 
required to complete the appropriate sections of a patient assessment 
instrument, the Inpatient Rehabilitation Facility-Patient Assessment 
Instrument (IRF-PAI). All required data must be electronically encoded 
into the IRF-PAI software product. Generally, the software product 
includes patient grouping programming called the GROUPER software. The 
GROUPER software uses specific Patient Assessment Instrument (PAI) data 
elements to classify (or group) patients into distinct CMGs and account 
for the existence of any relevant comorbidities.
    The GROUPER software produces a five-digit CMG number. The first 
digit is an alpha-character that indicates the comorbidity tier. The 
last four digits represent the distinct CMG number. (Free downloads of 
the Inpatient Rehabilitation Validation and Entry (IRVEN) software 
product, including the GROUPER software, are available on the CMS Web 
site at https://www.cms.hhs.gov/InpatientRehabFacPPS/06_Software.asp).
    Once a patient is discharged, the IRF completes the Medicare claim 
(UB-92 or its equivalent) using the five-digit CMG number and sends it 
to the appropriate Medicare fiscal intermediary (FI). Claims submitted 
to Medicare must comply with both the Administrative Simplification 
Compliance Act (ASCA, Pub. L. 107-105), and the Health Insurance 
Portability and Accountability Act of 1996 (HIPAA, Pub. L. 104-191). 
Section 3 of the ASCA amends section 1862(a) of the Act by adding 
paragraph (22) which requires the Medicare program, subject to section 
1862(h) of the Act, to deny payment under Part A or Part B for any 
expenses for items or services ``for which a claim is submitted other 
than in an electronic form specified by the Secretary.'' Section 
1862(h) of the Act, in turn, provides that the Secretary shall waive 
such denial in two types of cases and may also waive such denial ``in 
such unusual cases as the Secretary finds appropriate.'' See also the 
final rule on Electronic Submission of Medicare Claims (70 FR 71008, 
November 25, 2005). Section 3 of the ASCA operates in the context of 
the administrative simplification provisions of HIPAA, which include, 
among others, the requirements for transaction standards and code sets 
codified as 45 CFR parts 160 and 162, subparts A and I through R 
(generally known as the Transactions Rule). The Transactions Rule 
requires covered entities, including covered providers, to conduct 
covered electronic transactions according to the applicable transaction 
standards. (See the program claim memoranda issued and published by CMS 
at: https://www.cms.hhs.gov/ElectronicBillingEDITrans/ and the Internet-
Only Manual (IOM) at Pub. 100-04 published by CMS at: https://
www.cms.hhs.gov/Manuals/IOM/list.asp). Instructions for the limited 
number of claims submitted to Medicare on paper are published by CMS 
at: https://www.cms.hhs.gov/manuals/downloads/clm104c25.pdf.
    The Medicare FI processes the claim through its software system. 
This software system includes pricing programming called the PRICER 
software. The PRICER software uses the CMG number, along with other 
specific

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claim data elements and provider-specific data, to adjust the IRF's 
prospective payment for interrupted stays, transfers, short stays, and 
deaths, and then applies the applicable adjustments to account for the 
IRF's wage index, percentage of low-income patients, rural location, 
and outlier payments. For discharges occurring on or after October 1, 
2005, the IRF PPS payment also reflects the new teaching status 
adjustment that became effective as of FY 2006, as discussed in the FY 
2006 IRF PPS final rule (70 FR 47880).

II. Provisions of the Proposed Regulation

    As discussed in the FY 2008 IRF PPS proposed rule (72 FR 26230), we 
proposed to make revisions to the regulation text in order to implement 
policy changes for IRFs for FY 2008 and subsequent fiscal years. 
Specifically, we proposed to make conforming changes in 42 CFR part 
412. We discuss these proposed revisions and others in detail below.

A. Section 412.624 Methodology for Calculating the Federal Prospective 
Payment Rates

    We proposed to revise the current regulations text in paragraph 
(f)(2)(v) to clarify that we determine whether a high-cost outlier 
payment would be applicable for transfer cases. We emphasize that this 
is not a change to our current methodology for determining whether a 
high-cost outlier payment applies to transfer cases.

B. Additional Proposed Changes

     Update the FY 2008 IRF PPS payment rates by the market 
basket, as discussed in section IV.A of the FY 2008 IRF PPS proposed 
rule (72 FR 26320).
     Update the FY 2008 IRF PPS payment rates by the proposed 
wage index and the labor related share in a budget neutral manner, as 
discussed in section IV.A and B of the FY 2008 IRF PPS proposed rule 
(72 FR 26320).
     Update the pre-reclassified and pre-floor wage indexes 
based on the CBSA changes published in the most recent OMB bulletins 
that apply to the hospital wage data used to determine the current IRF 
PPS wage index, as discussed in section IV.B of the FY 2008 IRF PPS 
proposed rule (72 FR 26320).
     Revise the wage index policy for rural areas without 
hospital wage data by imputing an average wage index from all 
contiguous CBSAs to represent a reasonable proxy for the rural area 
within a State, as discussed in section IV.B of the proposed rule (72 
FR 26320).
     Implement the final year of the 3-year hold harmless 
policy adopted in the FY 2006 IRF PPS final rule (70 FR 47880, 447923 
through 47926) in a budget neutral manner, as discussed in section IV.B 
of the FY 2008 IRF PPS proposed rule (72 FR 26320).
     Update the outlier threshold amount for FY 2008 to $7,522, 
as discussed in section V.A of the FY 2008 IRF PPS proposed rule (72 FR 
26320).
     Update the cost-to-charge ratio ceiling and the national 
average urban and rural cost-to-charge ratios for purposes of 
determining outlier payments under the IRF PPS, as discussed in section 
V.B of the FY 2008 IRF PPS proposed rule (72 FR 26320).

III. Analysis of and Responses to Public Comments

    We received approximately 40 timely items of correspondence 
containing multiple comments on the FY 2008 proposed rule (72 FR 26230) 
from the public. We received comments from a university, various trade 
associations, inpatient rehabilitation facilities, health care industry 
organizations, and health care consulting firms. The following 
discussion, arranged by subject area, includes a summary of the public 
comments that we received, and our responses to the comments appear 
under the appropriate subject heading.

IV. 75 Percent Rule Policy

    In order to be excluded from the acute care inpatient hospital PPS 
specified in Sec.  412.1(a)(1) and instead be paid under the IRF PPS, a 
hospital or rehabilitation unit of an acute care hospital must meet the 
requirements for classification as an IRF stipulated in subpart B of 
part 412. As discussed in previous Federal Register publications 68 FR 
26786 (May 16, 2003), 68 FR 53266 (September 9, 2003), 69 FR 25752 (May 
7, 2004), 70 FR 36640 (June 24, 2005), and 71 FR 48354 (August 18, 
2006)), Sec.  412.23(b)(2) specifies one criterion that Medicare uses 
for classifying a hospital or unit of a hospital as an IRF. The 
criterion is that a minimum percentage of a facility's total inpatient 
population must require intensive rehabilitative services for the 
treatment of at least one of 13 medical conditions listed in Sec.  
412.23(b)(2)(iii) in order for the facility to be classified as an IRF. 
The minimum percentage is known as the ``compliance threshold.'' In 
addition, for cost reporting periods beginning on or after July 1, 
2004, and before July 1, 2008, a patient's comorbidity, as defined at 
Sec.  412.602, as well as the patient's principal diagnosis, may be 
included when determining the medical conditions of the inpatient 
population that count toward the required applicable percentage, if 
certain requirements are met.
    Prior to the May 7, 2004 final rule (69 FR 25752), Sec.  
412.23(b)(2) stipulated that the compliance threshold was 75 percent. 
Therefore, the compliance threshold was commonly referred to as the 
``75 percent rule.'' In addition, prior to the May 7, 2004 final rule, 
the regulation only specified 10 medical conditions. However, in the 
May 7, 2004 final rule, we revised Sec.  412.23(b)(2) to increase the 
number of medical conditions to 13. We also temporarily lowered the 
compliance threshold, while at the same time specifying a transition 
period at the end of which IRFs would once again have to meet a 
compliance threshold of 75 percent. Also, as described below, the 
revised regulation specified that during the compliance threshold 
transition period, a patient's comorbidity may be used to determine 
whether a provider met the compliance threshold, provided certain 
applicable requirements were met.
    The regulations at Sec.  412.602 define a comorbidity as a specific 
patient condition that is secondary to the patient's principal 
diagnosis. A patient's principal diagnosis is the primary reason a 
patient is admitted to an IRF, and this diagnosis is used to determine 
whether the patient had a medical condition that can be counted toward 
meeting the compliance threshold. As specified in the May 7, 2004 final 
rule, in order for an inpatient with a certain comorbidity to be 
included in the inpatient population that counts toward the applicable 
percentage, the following criteria must be met:
     The patient is admitted for inpatient rehabilitation for a 
condition that is not one of the conditions listed in Sec.  
412.23(b)(2)(iii).
     The patient also has a comorbidity that falls within one 
of the conditions listed in Sec.  412.23(b)(2)(iii).
     The comorbidity has caused significant decline in 
functional ability in the individual such that, even in the absence of 
the admitting condition, the individual would require the intensive 
rehabilitation treatment that is unique to inpatient rehabilitation 
facilities paid under the IRF PPS and that cannot be appropriately 
performed in another Medicare-covered care setting.
    In accordance with the May 7, 2004 final rule, IRFs would have had 
to meet a compliance threshold of 75 percent for cost reporting periods 
starting on or after July 1, 2007. However, section 5005 of the Deficit 
Reduction Act of 2005 (DRA, Pub. L. 109-171) modified the applicable 
time periods when the various compliance thresholds, as originally 
specified in the May 7, 2004 final rule, must be met. The net effect of 
the DRA was extension of the

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compliance threshold transition period. Due to the DRA, the transition 
period was extended to include cost reporting periods starting on or 
after July 1, 2004, and before July 1, 2008. Therefore, in order to 
conform the regulations to the DRA, we revised Sec.  412.23(b)(2) by 
stipulating that an IRF must meet the full 75 percent compliance 
threshold as of its first cost reporting period that starts on or after 
July 1, 2008, rather than on or after July 1, 2007. In addition, we 
also permitted a comorbidity that meets the criteria as specified in 
paragraph (b)(2)(i) of Sec.  412.23 to continue to be used, along with 
principal diagnosis, to determine the compliance threshold for cost 
reporting periods beginning before July 1, 2008, rather than before 
July 1, 2007. (For a complete description of all of the changes, see 
the FY 2007 IRF PPS final rule (71 FR 48354)).
    Under existing policy, for cost reporting periods beginning on or 
after July 1, 2008, comorbidities will not be eligible for inclusion in 
the calculations used to determine whether the provider meets the 75 
percent compliance threshold specified in Sec.  412.23(b)(2)(ii). 
However, in the May 7, 2004 final rule (69 FR 25762), we encouraged 
research evaluating the continued use of comorbidities in determining 
compliance with the 75 percent rule. Therefore, in the May 8, 2007 
proposed rule (72 FR 26230), we solicited comments supporting current 
policy or other options, including use of some or all of the existing 
comorbidities in calculating the compliance percentage for an 
additional fixed period of one or more years or to integrate the 
inclusion of some or all of the existing comorbidities on a permanent 
basis. In addition, we solicited comments that include clinical data 
based on scientifically sound research that provide evidence to support 
these and other options.
    We received many comments on this proposal, which are summarized 
below.
    Comment: Commenters cited our acknowledgement, made during a 
conference on Medicare and Medicaid payment issues held March 2007 in 
Baltimore, Maryland, that approximately 7 percent of inpatients from 
July 2005 through June 2006 were counted toward the compliance 
threshold because they met the medical conditions listed in Sec.  
412.23(b)(2)(iii) only because of the patient's comorbidities. They 
argued that eliminating use of comorbidities to determine the 
compliance percentage would be equivalent to adding an additional 7 
percent to the compliance threshold.
    Response: One method that we use to determine compliance with the 
requirements specified at Sec.  412.23(b)(2) is analysis of the 
impairment group and etiologic diagnosis codes, as well as the 
comorbidity codes, recorded on the IRF-PAI. It is true that IRF-PAI 
data from July 1, 2005, to June 30, 2006, indicates that approximately 
7 percent of IRF cases met the compliance standards based on the IRF-
PAI comorbidity codes alone rather than on the IRF-PAI impairment group 
or etiologic diagnosis codes. However, this does not mean that the 
cases were evenly distributed across providers or that 7 percent of 
IRFs met the compliance threshold solely because of the comorbid 
conditions of their inpatients. The commenters offer no evidence that 
IRFs needed to rely on those 7 percent of cases in order to meet the 
compliance threshold. Also, our rules already provide that up to 25 
percent of the cases do not have to be admitted because of a qualifying 
diagnosis. It does not follow that, because 7 percent of the IRF cases 
met the compliance standards only because of the comorbidities recorded 
on the IRF-PAIs, using just the principal diagnoses to determine 
compliance would result in a higher ``effective'' compliance threshold. 
For example, although an IRF may have had a certain percentage of cases 
that presumptively met a medical condition listed in Sec.  
412.23(b)(2)(iii) only because of the comorbid conditions recorded on 
the IRF-PAI, the IRF may also have a sufficient number of other cases 
with impairment group or etiologic codes that meet one of the medical 
conditions identified in Sec.  412.23(b)(2)(iii), and these other cases 
by themselves could allow the IRF to meet the compliance threshold.
    In addition, there is a second method of verifying compliance, 
which is the FI analyzing a random sample of medical records. 
Consequently, although the IRF may fail to meet the compliance 
threshold by an analysis of its IRF-PAI data, the IRF may meet the 
compliance threshold when the medical records are analyzed. The medical 
records identify the principal diagnoses, as well as the information 
supporting the principal diagnoses, which is much more detailed than 
the list of codes recorded on the IRF-PAIs. Thus, the medical record of 
a patient may indicate the presence of a qualifying condition that 
meets the 75 percent rule when the IRF data does not.
    The medical conditions that we believe are most appropriate for 
treatment in an IRF are listed in Sec.  412.23(b)(2)(iii). However, 
these medical conditions are not specific diagnoses, but broad medical 
categories. In addition, we acknowledge that there may be atypical 
patients with medical conditions not listed in Sec.  412.23(b)(2)(iii) 
who may occasionally also require treatment in an IRF. Therefore, Sec.  
412.23(b)(2) has always allowed the IRF the flexibility to admit a 
percentage of patients with medical conditions not listed in this 
section of the regulations without losing its classification status as 
an IRF and the higher reimbursement rate than would be paid to 
hospitals under the IPPS.
    It is important to note that even when the compliance threshold 
increases to 75 percent, an IRF may admit up to 25 percent of patients 
who have medical needs that meet the IRF medical necessity criteria but 
do not have as a principal diagnosis one of the 13 medical conditions 
used to classify a provider as an IRF. Thus, an IRF may admit up to 25 
percent of patients not meeting the 75 percent rule and still be 
eligible to be paid under the IRF PPS. In other words, when the 
compliance threshold increases to 75 percent, as many as 1 in every 4 
patients may still be admitted with a principal diagnosis that is not 
one of the medical conditions listed in Sec.  412.23(b)(2)(iii), as 
long as the patient requires an IRF level of care. Therefore, if an IRF 
believes that the clinical status of some patients involves principal 
diagnoses or comorbidities that are so unusually medically and 
functionally complex as to demonstrate medical necessity to be admitted 
the IRF, then the IRF may admit these atypical cases as part of the 
percentage of cases that do not have to meet the 75 percent rule.
    Comment: Many commenters urged CMS to permanently continue to use a 
patient's comorbidities to determine whether a provider met the 75 
percent rule. Some commenters stated that terminating the use of 
comorbidities would decrease the number of IRFs that can achieve 
compliance as they are adapting their admissions policies and operating 
procedures. Several commenters urged us to continue the use of 
comorbidities in the compliance calculations until we can refine the 
way we identify patients that are most appropriate for an IRF-level of 
care, or until such time as we have sufficient data to reassess all the 
provisions of the 75 percent rule. These commenters state that the 
simple diagnosis-based criteria used in the 75 percent rule is 
insensitive to the special needs of individual patients, and encouraged 
CMS to move toward more patient-specific criteria. These commenters 
also urged CMS to modernize the classifying conditions. Several 
commenters argued that

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comorbidities should be retained for use in compliance calculations at 
a minimum until further research examining the use of comorbidities is 
conducted, such as assessing the potential negative patient outcomes 
that may result from the discontinued use. Commenters believed that 
expiration of the comorbidity provision would change provider behavior, 
and specifically change admission patterns, in ways that cannot be 
evaluated using historical data.
    Response: We believe a patient's principal diagnosis most 
accurately identifies the medical condition that required intensive 
inpatient rehabilitation. A patient's principal diagnosis is determined 
from the combination of items and services the IRF furnished to the 
inpatient as documented in the patient's medical record, including the 
data derived from medical tests, lab tests, procedures, and therapy, as 
well as the notes of the IRF's clinicians. Medical conditions that are 
secondary to the patient's principal reason for the inpatient 
rehabilitation stay are comorbid medical conditions.
    It is not unusual for patients admitted to an IRF to have more than 
one ailment for which the patient exhibited a need for medical 
treatment. However, it is the patient's principal diagnosis that most 
accurately denotes whether a patient had a medical condition listed in 
Sec.  412.23(b)(2)(iii) that required intensive inpatient 
rehabilitation because of how, as described previously, the principal 
diagnosis is determined. In other words, the data used to determine the 
principal diagnosis makes it the most accurate diagnosis that 
identifies the medical condition which required intensive inpatient 
rehabilitation. Additionally, as stated above, Sec.  412.23(b)(2) has 
always allowed the IRF the flexibility to admit a percentage of 
patients with medical conditions not listed in this regulation section, 
as long as the patient requires an IRF level of care, without 
jeopardizing the IRF's classification and eligibility for payment under 
the IRF PPS.
    We believe it is essential that we maintain appropriate criteria to 
ensure that only facilities providing medically necessary intensive 
inpatient rehabilitation are classified as IRFs. Thus, it is imperative 
to identify medical conditions that would typically require intensive 
inpatient rehabilitation in IRFs, because rehabilitation in general can 
be delivered in a variety of settings, such as acute care hospitals, 
SNFs, and outpatient settings. The most appropriate method we can use 
to identify the medical condition of an inpatient is to determine the 
impairment that led to admission of the patient to the IRF. It is the 
principal diagnosis that best identifies the impairment which resulted 
in the patient's admission providing the principal diagnosis was made 
in accordance with acceptable medical practice and appropriate clinical 
coding standards.
    The inclusion of comorbidities in determining provider compliance 
with IRF classification requirements was established as a temporary 
policy in our May 7, 2004 final rule (69 FR 25752), and the revised 
regulation continues to be commonly referred to as the 75 percent rule. 
After careful review of a large volume of comments, we stated in the 
May 7, 2004 final rule (69 FR 25752, 25762) that we recognized IRFs 
could need additional time in order to adjust to the revised 
regulations. Therefore, in order to give IRFs flexibility to adapt we 
implemented a phase-in to meeting the 75 percent compliance threshold. 
Similarly, the intent of the comorbidity provision was to provide 
flexibility that would help providers adapt to the phase-in of 
enforcement of the compliance threshold.
    Originally the transition time period, which provided for a phase-
in of the compliance percentage and included the use of comorbid 
conditions in compliance calculations, was 3 years. However, in 
accordance with the DRA, the transition time period was extended one 
additional year. We also decided to extend the use of comorbidities for 
one additional year as well to maintain consistency with our current 
approach with respect to the counting of comorbidities before the 75 
percent threshold applies. Therefore, providers will have had 4 years 
to adjust their case-mixes and adapt their operations in order to 
comply with the 75 percent rule.
    As stated in the May 7, 2004 final rule (69 FR 25752, 25762) we 
have encouraged stakeholders to conduct research studies that could 
assist us in evaluating IRF compliance criteria. (Elsewhere in this 
preamble we describe our research efforts.) While we are aware that 
some studies have been initiated, they have not yet yielded results. 
The commenters urging the continuation of comorbidities did not support 
their arguments with sound clinical evidence on the value of including 
comorbidities when calculating the compliance percentage. In the 
absence of such evidence, we do not believe it would be appropriate to 
convert what was always intended to be a temporary accommodation during 
the phase-in period to a permanent policy. Similarly, we think it would 
be inappropriate to adopt an extension of indefinite duration because 
we have no way to estimate when and if sufficient data will become 
available to reevaluate the IRF classification criteria. However, we 
will examine our policies as the results of well-designed, rigorous, 
scientific studies become available and continue to encourage the 
industry and academics to conduct rehabilitation research. We will 
continue to evaluate the 75 percent rule and as appropriate will 
consider improvements to the criteria identifying appropriate IRF 
admissions that are supported by high-quality research and/or our data 
analysis.

Miscellaneous 75 Percent Rule Comments

    Although it is difficult to separate comments on our comorbidity 
policy and comments on the other provisions of the 75 percent rule, we 
believe that the following comments were generally about the other 
aspects of the 75 percent rule.
    Comment: Commenters stated that the 75 percent rule jeopardized the 
care of patients who required treatment in an IRF by restricting access 
to treatment. They believe that patients with medical conditions not 
listed in Sec.  412.23(b)(2)(iii) should be admitted to IRFs because 
IRFs provide better care for these types of patients. One commenter 
further stated that the 75 percent rule, by restricting access to care, 
is denying patients with disabilities access to the comprehensive, 
coordinated rehabilitation services in an IRF. Another commenter 
referenced research that the commenter believes shows the length of 
stay (LOS) of patients with single joint replacements was less in an 
IRF as opposed to a SNF.
    Response: In this rule, we did not propose changes to the 13 
qualifying conditions considered to be appropriate for IRF care. 
However, in the May 7, 2004 final rule (69 FR 25752) we responded to 
similar comments. We continue to believe that an IRF is appropriately 
characterized as an inpatient hospital setting designed to provide the 
specialized, intensive, and interdisciplinary rehabilitation level of 
care that certain types of patients need. Although we remain committed 
to maintaining access to rehabilitation care for all Medicare 
beneficiaries, not all patients require the intensive degree of 
rehabilitation services that an IRF furnishes. We believe that those 
specific patients with certain medical conditions requiring intensive 
inpatient physical therapy, occupational therapy, and, if necessary, 
speech and language therapy

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are the patients most appropriate for treatment in an IRF.
    We do not believe that the 75 percent rule jeopardizes access to an 
appropriate level of rehabilitation care, nor do we have data to 
support that perspective. In addition, although an IRF is capable of 
extensive medical management of patients by virtue of its inpatient 
hospital status, as we stated in the May 7, 2004 final rule (69 FR 
25752, 25764) ``patients who require medical management but not 
intensive, interdisciplinary rehabilitation can be cared for in another 
setting.'' The fact that care in an IRF may be preferred by some 
patients and/or their physicians does not make it the most appropriate 
clinical treatment setting or the most optimal use of intensive 
rehabilitation resources uniquely provided by IRFs. As part of our 
ongoing efforts to evaluate the impact of the requirements at Sec.  
412.23(b)(2) since we revised the regulations, we have analyzed the 
available data extensively. Our most recent analysis of this data is 
available at the following Web site: https://www.cms.hhs.gov/
InpatientRehabFacPPS/Downloads/IRF_PPS_75_percent_Rule_060807.pdf.
    As the IRF industry has noted, the reduced claims volume identified 
since 2004, which shows the decrease in the inpatient population of 
IRFs, is almost entirely attributable to cases in one of these five IRF 
PPS rehabilitation impairment categories (RICs): Lower extremity joint 
replacement, cardiac, osteoarthritis, pain syndrome, and the 
miscellaneous category. These five RICs are precisely the types of 
medical conditions that the 75 percent rule was designed to screen out, 
because they are not generally thought to require the intensive 
rehabilitation services provided by IRFs. The clinical experts that CMS 
consulted prior to publishing the May 7, 2004 final rule (69 FR 25752) 
indicated that the vast majority of patients with these medical 
conditions could typically be cared for appropriately in other less 
intensive settings. In addition, while we have and are continuing to 
encourage research studies, these studies have not yet been completed. 
In the absence of findings generated from well-designed scientific 
studies, we have no evidence showing that the medical conditions in 
these 5 RICs require treatment in an IRF as opposed to receiving 
treatment at another treatment setting. Therefore, we do not agree that 
without a more complete analysis of the patient characteristics and 
care needs of patients served in the different settings that a 
shortened length of stay for single joint replacement cases is, in 
itself, a compelling reason for these cases to be treated in an IRF.
    In addition, as more fully described in the analysis, which is 
available on the previously identified Web site, our examination of the 
data indicates that patients requiring post-acute rehabilitation care 
for four common conditions (total knee replacement, total hip 
replacement, hip fracture, and stroke) have access to and are receiving 
services in different settings. Therefore, we believe that the data 
indicate beneficiaries have access to care and are receiving the 
appropriate level of care at an appropriate cost to the Medicare 
program. Further, we believe the 75 percent rule promotes equal access 
to those who require an IRF level of care.
    The IRF classification polices are used to identify those patients 
who have a need for a more intensive level of rehabilitation than is 
generally required by most patients. Recent industry reports emphasize 
only a very selective subset of the CMS data, using as their starting 
point the highest level of utilization and then focusing on the 
relative decreases that follow. It is important to note, however, that 
the highest historical level of utilization is not necessarily the most 
appropriate or even the most typical level of utilization, and that 
patients who need rehabilitation services have continued access to 
these services in other settings, as shown by the data in the analysis 
on the previously referenced Web site. For example:
     Although the proportion of total knee replacement and 
total hip replacement patients receiving care in IRFs has dropped 
significantly since 2004, our data show that the proportions of these 
patients receiving care in the other post-acute care settings are 
increasing.
     The SNFs, particularly, are now better able to manage 
patients with musculoskeletal conditions with the introduction of 9 new 
resource utilization group payment categories beginning in FY 2006. 
These new payment categories compensate SNFs more fully for patients 
who have both significant rehabilitation and medical needs--precisely 
the type of patient who may need some level of medical monitoring but 
does not require the intense level of inpatient rehabilitation services 
provided in an IRF setting.
    The analyses described above are part of our ongoing evaluation of 
our IRF classification policies. However, although we have encouraged 
research to be undertaken that would contribute to improving the 
criteria for identifying appropriate IRF admissions, we have not 
received results of well-designed scientific studies that would support 
such changes at this time.
    Comment: Several commenters stated that we should suspend 
increasing the compliance percentage until we have implemented a single 
post-acute assessment instrument. One commenter stated that we should 
devise a price-neutral payment system to pay for care that could be 
furnished in either a SNF or an IRF. Although the commenter was not 
clear, we believe that by ``price-neutral payment system'' the 
commenter means payments that are basically the same regardless of the 
setting where the services were furnished. We refer to such a payment 
system as being site-neutral. Another commenter stated that instead of 
the broad 13 medical conditions we should use facility characteristics 
to define a provider as an IRF. Many commenters recommended that the 
medical conditions listed at Sec.  412.23(b)(2)(iii) should be updated. 
Other commenters suggested that we should use more specific patient-
centered criteria than the broad 13 medical conditions in order to 
identify which patients should receive care in an IRF. Similarly, a 
commenter stated that a patient's overall function should be used to 
determine compliance. Another commenter encouraged us to better 
identify patients who ``typically'' are in need of inpatient 
rehabilitation. This commenter urged CMS to consider that the 
comorbidity in combination with the primary diagnosis establishes the 
need for inpatient rehabilitation. Some commenters stated that the 75 
percent rule is insensitive and inadequate as a tool to determine a 
patient's need for IRF care.
    Response: While these recommendations address issues that are 
beyond the scope of this rule because they concern issues about which 
we did not make any proposals, we will address them briefly because 
they generally pertain to the 75 percent rule. We agree that future 
data analysis and the results of well-designed scientific studies may 
inform policy decisions regarding the IRF classification criteria. With 
input from all our stakeholders, we will continue our efforts to make 
these refinements as quickly as possible. In attempting to promote 
research that better identifies the types of patients whose treatment 
needs require an IRF setting, CMS has collaborated with several crucial 
stakeholders to create a framework for future research. We describe 
some of these efforts below.
     At CMS's request, the National Center for Medical 
Rehabilitation Research at the National Institute of Child Health and 
Human Development

[[Page 44291]]

(NCMRR/NICHD) at the National Institutes of Health (NIH) convened a 
panel in February 2005 to develop a research agenda on appropriate 
settings for rehabilitation.
     Recently, NCMRR/NICHD also issued a notice on the NIH Web 
site recognizing the need to enhance the evidence base for clinical 
practice, with a commitment to work with providers and research groups 
to encourage the design of clinical studies that meet NIH standards. We 
also intend to work with researchers conducting NIH-approved studies so 
that they can meet their study objectives within the overall framework 
of the Medicare program benefit.
     Over the past year, we have been actively participating in 
various NIH panel discussions to foster research in the area of medical 
rehabilitation, with the goal to better identify typical 
characteristics of patients in need of the intensive rehabilitative 
services that only IRFs can provide. In the course of attending these 
meetings, we have established connections with many of the researchers 
conducting the research in this area and have been helping them to 
identify the appropriate resources within CMS.
     We strongly support industry research efforts by serving 
on project advisory boards and by participating in industry-sponsored 
meetings and research conferences.
    We also want to express our support for our integrated post-acute 
payment system demonstration project. As part of that demonstration, we 
are developing an assessment instrument that can be used to assess 
patients in different treatment settings. We expect that the 
demonstration will generate much needed data on differences in patient 
characteristics and treatment outcomes across settings that will be 
extremely useful in our ongoing evaluation of the IRF PPS. Further, in 
an effort to try to move toward a site-neutral payment system as 
suggested by a commenter, the proposed FY 2008 President's Budget 
includes a proposal to reduce the difference in payment between IRFs 
and SNFs for total knee and hip replacements. We will continue to look 
for opportunities to propose policies which move the program in the 
direction of our ultimate goal of PAC payment reform.
    In summary, we will continue to examine our IRF classification 
polices and the criteria for identifying appropriate IRF admissions 
using sound data analysis or well-designed scientific studies.
    Comment: A commenter believes that our CMG data should be used to 
identify the concentrations of typical conditions treated in an IRF and 
use that data instead of or in combination with the 13 medical 
conditions listed in the regulations as the criteria to classify a 
provider as an IRF.
    Response: We addressed a similar comment in the May 7, 2004 final 
rule (69 FR 25752, 25758-25759) regarding why it would be inappropriate 
to use the RICs to classify a provider as an IRF. The CMGs are derived 
from the RICs and, thus, using CMGs to classify a provider as an IRF 
would also be inappropriate. The payment system, which is based on the 
RICs, was devised to pay for all the patients an IRF admits, including 
the patients not counted as part of the compliance percentage the IRF 
must meet. Thus, a PPS created to pay for IRF cases is different than a 
classification system that specifies the percentage of patients that 
must have certain medical conditions. We refer the commenter to the May 
7, 2004 final rule for a more detailed explanation.
    Comment: A commenter suggested that we modify our medical review 
policies to assume that any claim with a qualifying diagnosis or a 
comorbidity code used in the 75 percent rule calculations can be deemed 
to meet Medicare's medical necessity provisions. Another commenter 
stated that FIs were incorrectly performing medical necessity reviews. 
The same commenter expressed concerns regarding how the Recovery Audit 
Contractors (RACs) are performing their reviews. Another commenter 
stated that the 75 percent rule is being used as a crude measure of 
medical necessity. A few commenters suggested all local coverage 
determination polices be suspended until we fully examine the issues 
associated with medical necessity for IRF level of care. Another 
commenter requested that we use the criteria specified in the Health 
Care Financing Administration (HCFA) ruling 85-2 as the sole 
determinant for the medical necessity of an IRF admission, and 
implement a moratorium on new rehabilitation programs participating in 
Medicare until we revise the 75 percent rule. One commenter requested 
that CMS expand our policy to include additional complicating 
conditions as comorbidities, which count toward compliance with the 75 
percent rule.
    Response: These comments relate to regulatory policies or 
operational issues that are outside the scope of the rule. 
Nevertheless, we address them briefly here. First, the purpose of the 
comorbidity policy has been to recognize patients with one of the 13 
qualifying conditions, even when that qualifying condition is not the 
primary reason for the IRF admission. The effect of adding new codes 
would be to inappropriately expand the set of qualifying conditions 
without any clinical evidence or review. Second, our medical review 
protocols and IRF compliance criteria were designed to perform two 
distinct oversight functions. For example, medical review protocols are 
used to ensure that claims are paid appropriately, but our IRF 
classification criteria are used to ensure that only facilities that 
provide intensive inpatient rehabilitation services are paid under the 
IRF PPS. While we continue to work diligently to improve consistency 
between the review protocols where appropriate, we realize that there 
will always be some differences that reflect differences in statutory, 
regulatory and operational priorities and the two distinct oversight 
functions. Third, regarding the reviews performed by our contractors, 
it should be noted that we believe these reviews are necessary to 
ensure the integrity of the Medicare trust fund. As part of this 
oversight function, we continuously review the performance of our 
contractors to ensure that they are functioning in accordance with our 
policies and guidance. Finally, we believe that implementing a 
moratorium on new rehabilitation programs participating in Medicare 
could result in restricting access to care and therefore is not 
appropriate at this time.
    Comment: A commenter stated that the impact of the 75 percent rule 
combined with reviews being performed by FIs and RACs have decreased 
IRF admissions well beyond the estimates we envisioned in the May 7, 
2004 final rule (69 FR 25752). In addition, the commenter appeared to 
indicate that the significant drop in IRF admissions as a result of the 
75 percent rule and the contractor reviews calls into question the 
validity of the revisions to Sec.  412.23(b)(2) that we made in the May 
7, 2004 final rule.
    Response: In evaluating the potential effect of an impending rule 
change, the regulatory impact analysis represents our best effort to 
project the economic impact of the change, based on the data available 
at the time of publication. It is important to note that such 
projections are estimates, and that they consider only the potential 
effect of the change itself. Moreover, we do not use such projections 
as program targets or benchmarks, but rather, conduct reviews and 
analyses of program data after the change is implemented in order to 
evaluate its actual impact.
    In order to put a proposed change in perspective, a regulatory 
impact analysis generally is projected on the

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assumption that all other variables remain constant. Thus, the 
projections in a regulatory impact analysis take historical data on 
provider behavior, utilization of services, and expenditure levels and 
simply trend them forward, in order to show more clearly the effect of 
the single policy change under review.
    When we imposed the temporary moratorium on enforcing the 75 
percent rule in June 2002, we assumed that provider case-mix and 
utilization would remain stable while we took steps to standardize the 
provider classification procedures. However, our data indicate that 
during the period when the moratorium was in effect, there was actually 
a pronounced increase in the volume of IRF cases involving certain 
specific categories of conditions. In general, the medical conditions 
in these particular rehabilitation impairment categories--lower 
extremity joint replacement, cardiac, osteoarthritis, pain syndrome, 
and miscellaneous--are unlikely to require intensive rehabilitation in 
IRFs. According to the clinical experts that CMS consulted in revising 
the 75 percent rule criteria prior to publishing the May 7, 2004 final 
rule, the vast majority of patients with these medical conditions can 
typically be appropriately cared for in other less intensive settings. 
In addition, we have not received reports from well-designed scientific 
studies showing that these medical conditions are typically appropriate 
for treatment in an IRF. Thus, we continue to believe that these 
medical conditions are appropriately treatable in other, less intensive 
settings.
    When we resumed enforcement of the 75 percent rule, the volume of 
these less intensive IRF cases decreased, accompanied by a concomitant 
increase in the volume of cases involving conditions that typically do 
require intensive rehabilitation: brain injury and certain nervous 
system conditions. This phenomenon would appear to indicate that:
     The 75 percent rule accurately identifies as IRFs those 
facilities serving patients who genuinely need intensive 
rehabilitation; and
     Significant behavior changes occurred among IRFs in 
response to both the initial imposition and the subsequent lifting of 
the moratorium, underscoring the inappropriateness of utilizing the 
2004 final rule's regulatory impact analysis projections (which were 
not designed to take possible behavior changes into account) as a 
benchmark in analyzing subsequent utilization patterns.
    We do not believe that the decline in IRF utilization levels for 
certain conditions in the period since we lifted the moratorium is an 
indication that beneficiaries are being denied access to needed care in 
this setting. As explained above, we believe that the moratorium itself 
may well have triggered aberrant IRF utilization patterns, which were 
skewed toward certain conditions that generally do not require the 
exceptionally intensive type of rehabilitation that characterizes the 
IRF setting. As a consequence, what would appear to be a relative 
decline in IRF utilization since that time may, in fact, represent a 
return to more normal utilization patterns, which better reflect the 
actual prevalence of patient need for the kind of intensive 
rehabilitation that the IRF setting is intended to provide.
    We will continue to review Medicare claim and patient assessment 
data closely as part of our ongoing effort to monitor Medicare 
beneficiary access to rehabilitation services in IRFs.
    Comment: A commenter stated that the 75 percent rule